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Jewish World Review March 8, 2001 / 13 Adar 5761

Morton Kondracke

Kondracke
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Tax fight turns back to question of what's 'fair'


http://www.jewishworldreview.com -- IS President Bush's tax plan "unfair," as Democrats claim? In part it depends on what the meaning of "fair" is, but chances are that Congress will follow one definition and make it slightly less generous to the very rich.

Republicans say that Bush's tax cut is fair because it gives money back to the people who paid it. "This is their money, after all," goes the GOP mantra.

Since the wealthiest taxpayers pay the most taxes - 40 percent of all income taxes and almost all of inheritance taxes - they deserve to get the most money back in a tax cut, by GOP logic.

Democrats are doing their best to make that principle sound shocking. Responding to Bush's speech to Congress last week, House Minority Leader Richard Gephardt (D-Mo.) said, "The President's plan is deeply unfair to middle-income Americans."

"The wealthiest 1 percent, people who make an average of over $900,000 a year, get 43 percent of the President's tax cut,"he added. "The President also wants to eliminate the estate tax for the wealthiest of the wealthy."

At a White House briefing the next day, Treasury Secretary Paul O'Neill denounced Gephardt's assertion as "a nonsense set of statistics." Office of Management and Budget Director Mitch Daniels declared it was based on "50 assumptions that nobody in their right mind would accept."

The Bush administration, though, had no distribution tables of its own to offer. It merely redistributed a Bush campaign document from 1999 revealing that the share of all income taxes paid by people making more than $200,000 a year would rise from 39 percent to 41 percent under his plan.

The chart did not account for Bush's plan to eliminate inheritance taxes, however, which primarily benefits the wealthy.

According to Citizens for Tax Justice, the liberal group that came up with the maligned 43 percent estimate for Bush's plan, the top 1 percent of taxpayers would receive total breaks averaging $54,500 in 2006.

The Democrats' idea of fairness is to target tax cuts - though they don't use the word "target" anymore - to the lower middle and middle class, where the most voters are.

CTJ estimated that the largest share of the newly unveiled Democratic tax plan, 55.2 percent, would go to taxpayers with family incomes of $44,000 to $147,000. The top 1 percent of taxpayers would get 6.5 percent of the benefits.

In terms of dollars, under the Democratic plan, the actual tax cut for middle-income families would be around $600 a year (less than Bush's $1,600 because the total tax cut is smaller) and $2,600 for the top 1 percent, according to CTJ.

Under yet another definition of fairness, the ultra-liberal House Progressive Caucus has proposed giving every family a $300 tax cut, regardless of income.

Sounding an even more populist note, the centrist Democratic Leadership Council unveiled a plan that is more generous to the working poor than either the Progressive or Democratic plans, giving up to $2,100 a year to a single mother with two children who makes less than $20,000 annually.

Former Clinton White House aide Bruce Reed, now a DLCofficial, declared that "instead of rewarding work, the Bush plan rewards privilege." The DLC plan would give couples making more than $1 million a tax break of just $1,500 a year.

"American families and American workers built the surplus,"said a DLC statement. "A tax cut should reflect their values and economic interests."

Normally one would expect the centrist DLC to recognize that capital investment also had a role in building the surplus, but since a number of its leaders are running for the 2004 Democratic presidential nomination, the group seems to be joining what Republicans denounce as "class warfare."

DLC leaders reject the insinuation. "We've always been for progressive taxation," said Will Marshall, president of the DLC's think tank, the Progressive Policy Institute.

Democrats of all stripes are particularly eager to expose one delicious hole in Bush's case, as pressed in his speech to Congress - the plight of the single mother making $25,000 who has to pay a 50 percent marginal rate on any additional money she earns.

That's true because she loses earned income tax credit benefits, but under Bush's plan she would receive not one cent more in income because, paying no income taxes, she gets no tax cut.

Both the DLC and Democratic leadership plans expand the EITC for the working poor (Republicans call this "welfare"), and the DLC plan provides an income tax credit against Social Security taxes, which is regressive.

Politically, "fairness" or "class warfare" appeals don't have as much potency as one might expect.

Still, it's probable that Congress won't give Bush a reduction in the top income tax rate from 39.6 percent to 33 percent or a total repeal of the estate tax.

That's fair. Those who pay the most taxes do deserve a break of some kind. But they also experienced the biggest income gains during the 1980s and 1990s.



JWR contributor Morton Kondracke is executive editor of Roll Call, the newspaper of Capitol Hill. Send your comments by clicking here.

Up

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